Stock Story -
What Happened: Shares of IT project management software company, Atlassian (NASDAQ:TEAM) jumped 6.8% in the afternoon session after The Federal Reserve maintained its key interest rate for the third consecutive time, holding it within the targeted range of 5.25%-5.5%.
Additionally, committee members signaled a more dovish stance for 2024, anticipating at least three quarter-point rate cuts, roughly aligning with market expectations but more accommodative than Fed officials' previous statements. The market is focusing on this change.
The Fed Chair added that "Inflation has eased from its highs, and this has come without a significant increase in unemployment."
In line with the Fed's assessment, on December 12, 2023, the Bureau of Labor reported a slight decline in inflation, attributed to lower gasoline prices and a general easing of price pressures in the U.S. The consumer price index (CPI) for November showed a 3.1% increase from the previous year (in line with market expectations), down from 3.2% in October, indicating ongoing disinflationary pressures.
As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.
Is now the time to buy Atlassian? Find out by reading the original article on StockStory.
What is the market telling us: Atlassian's shares are very volatile and over the last year have had 31 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 14 days ago, when the company gained 5.2% as the macro provided a tailwind, and many tech stocks flashed green. Specifically, the yield on the 10-year Treasury fell below 4.3%, the first time it has dropped to these levels since September 2023. There seems to be increased optimism in the market that because inflation is stabilizing, interest rates could stabilize or even move lower.
As a reminder, lower rates are a good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.
Atlassian is up 71% since the beginning of the year. Investors who bought $1,000 worth of Atlassian's shares 5 years ago would now be looking at an investment worth $2,568.
